How to Measure Employee Retention

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Retention and turnover rates are both quantifiable measurements that aid in setting human resources budgets, establishing employee compensation, assessing net profit or income, as well as justifying the return on investment in human resources activities. Although it's possible to focus solely on retention, turnover is just as important. These two factors are related, and information about both is especially helpful in discussions about recruitment, selection and talent management.

Conduct research on the difference between employee turnover and employee retention. Turnover and retention are often confused or used interchangeably. Turnover refers to employees who enter new jobs and leave either voluntarily or involuntarily, expressed either numerically or in terms of percentages. Turnover analysis can be useful for specific company data or industry purposes.

The turnover rate for jobs in the food and beverage industry is generally higher because of factors such as employee age and maturity, job satisfaction, and seasonal or transitional employment conditions. That having been said, an article about restaurant employment that indicates an annual 50 percent turnover rate means that for every 100 employees, one-half were terminated, resigned or abandoned their jobs during a one-year period.

Consider the meaning of retention inversely related to turnover. Instead of the percentage or number of employees who leave their jobs, retention refers to employees who remain employed. This measurement is also used in discussions about specific employers as well as industries. For example, an abundance of literature exists about health care industry retention rates pertaining to nursing shortages.

Retention rates can be measured organization-wide, by specific occupational groups or any other aspect of employment such as "What is the retention rate for employees who live outside the average commuting distance?"

Calculate your retention rate for a meaningful period of time, such as one-year or five-year tenure. Unless your company experiences tremendously high turnover, calculating your retention rate for any shorter length of time may not help you develop strategy to retain employees.

A sample calculation for a 10-year period is based on 100 employees, 50 of whom remain employed in the same occupational group for 10 years. If 10 of those employees are terminated or leave the company and 40 stay with the company for eight years, your basic retention rate is 90 percent. Ten employees who leave represent 10 percent of the work force, leaving 90 percent retention.

Assuming you want to examine the average tenure of employees you retain -- another element of recruitment and retention -- the result is 9.1 years. This calculation uses the total number of years for 90 employees: 50 multiplied by 10, plus 40 multiplied by 8, equals 820 years divided by 90 employees.

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